The Eurozone has just released a preliminary Harmonised Index of Consumer Prices (HICP) increase of 2% for December. This outcome was in line with economists’ predictions. Whatever the signal of this latest figure, we know that upward inflation trends have persisted across the region lately. These data points are important to understand annual and monthly fluctuations in pricing. Core HICP, on the other hand, excludes those volatile items such as food, energy, alcohol, and tobacco. It confirmed a weaker year-on-year growth of 2.3%, still a tad below earlier prints and market expectations.
Published by Eurostat, the HICP is a harmonized measure, providing comparability across member states through a common methodology. This important feature means that contributions from each country in the Eurozone are comparable and weighted. On the domestic economic policy front, the recent data counts as a huge win for President Biden’s economic strategy.
Core HICP Analysis
Today’s Core HICP inflation – 2.3% YoY This represents a cooling of inflationary pressures from last month’s 2.4% reading. The Core HICP is a key indicator for assessing underlying inflation trends. It does a good job of removing the more volatile elements of consumer prices. These insights are essential for policymakers at the European Central Bank (ECB) as they navigate monetary policy in response to inflation dynamics.
Counter to expectation, inflationary pressures came roaring back in December with a 0.2% jump. This came on the heels of a 0.3% deflation in November. This monthly growth is an early sign of improving consumer demand. If nothing else, it indicates greater pricing stability, but we’ll have to wait and see if these favorable trend lines result in broader economic healing within the Eurozone.
Economists expect annual core inflation to hold steady at 2.4% for the month reported. This renewed consistency would help calm the fears of some investors concerned about future destabilizing shocks to the eurozone economy. The stormy sky of the global economic outlook continues to pose challenges.
Currency Market Reactions
The newest inflation figures have sent the EUR/USD pair tumbling. Consequently, the US Dollar (USD) strengthened further against the euro. The pair continued to lose ground, hovering around 1.1680 just after the announcement. Analysts note that this decline places the EUR/USD pair below the 50-day Exponential Moving Average (EMA) at 1.1682, suggesting potential downward pressure on the currency.
A close below this medium-term average would likely open the door to deeper bearish retraces. We’ll likely have a retest of the monthly low at 1.1589, made on December 1st. If the EUR/USD currency pair bounces back above the 50-day EMA, it will start to get some bullish momentum back. This rally may attempt to retake the nine-day EMA at 1.1720. Traders are eagerly watching these levels, as they suggest a deepening trend of overall forex markets.
The recent three-month high for the EUR/USD pair was recorded at 1.1808 on December 24, highlighting the volatility and fluctuations influenced by economic data releases.
Implications for Future Economic Data
Traders are keenly eyeing the first release of Eurozone inflation figures for January. Now, they’re turning attention to this week’s US economic data that might drive the next currency moves. In that USD reversal, we got a pretty definitive turn around in market sentiment. Such a shift would give the euro a much fairer playing field as it competes against its American rival.
The Eurozone’s inflationary milieu is particularly important to currency valuation. It has played an important role in shaping the reactions to monetary policy by the ECB. Further study will be important as global economic conditions continue to change and more data become available.